'Achieve' High Returns With These 3 Dividend Growth Stocks

While many dividend growth investors rightly focus on owning the names in the Dividend Aristocrat index, we believe that investors shouldn't ignore those companies that have increased their dividends for a lesser amount of time. Doing so could cause investors to miss out on high total return potential in addition to solid yields and dividend growth. This article will examine three of our favorite Dividend Achievers, those companies with at least a decade of dividend growth, including: Amgen Inc. HP Inc. Verizon Communications Inc. All three our strong buys, in our opinion, due to projected annual returns over the next five years. Dividend Achiever #1: Amgen With a market capitalization of $118 billion and annual revenues in excess of $26 billion, Amgen is the largest biotechnology company in the world. The company's products address needs in the areas of bone health, cardiovascular disease, inflammation, nephrology, neuroscience and oncology. The 41-year-old company operates in nearly 100 countries. Amgen has raised its dividend for the past 10 years. What the company lacks in dividend length it makes up for in dividend growth. From 2011 through 2020, the company's dividend had a compound annual growth rate (CAGR) of almost 28%. Growth has slowed as the dividend has reached a higher amount, but the five-year CAGR is just under 10%. This just so happens to be the amount that Amgen raised its dividend for the March 8, 2021 payment date. The shares yield 3.4%, which compares favorably to the stock's average yield of 2.3% since 2011 and to the average yield of 1.3% for the S&P 500 index. Amgen has seen such high rates of dividend growth because the company has had robust earnings growth, to the tune of 12.2% over the last decade. Surely, some of Amgen's aggressive share repurchases have aided this growth rate as the company reduced its share count by more than 3% since 2011. Still, net profit has a CAGR of 7.4% over this period of time showing that Amgen is no slouch when it comes to growing its profitability. Amgen has leveraged its positioning as the largest name in biotechnology to its benefit, allowing it to have a reach that few competitors can match. We anticipate that Amgen can grow earnings per share at a rate of 9% annually through 2026 given the combination of business success as well as share repurchases. Shares of Amgen recently traded hands at $203. Using our estimates of EPS of $16.50, the stock has a price-to-earnings ratio of just 12.3. Were the shares to return to our target multiple of 13.4 times earnings, which happens to be the long-term average, then valuation would add 1.7% to annual returns through 2026. Total returns will consist of the following: 9% earnings growth 3.4% starting dividend yield 1.7% multiple expansion. In total, we expect that Amgen will offer a total annual return of 14.1% through 2026, one of the highest potential returns in our coverage universe. Dividend Achiever #2: HP Inc. HP can trace its history all the way back to the mid-1930s, but came to be in its present form following its spinoff from Hewlett-Packard in late 2015. HP holds the enterprise technology infrastructure, software and services businesses following the separation. The company is valued at nearly $33 billion and has annual revenues of $62 billion over the last four quarters. HP's dividend growth streak of 10 years dates back to when it was still part of its parent company. Since the spinoff, the company's dividend growth has been solid, at 13.6% since its first full year as a standalone entity. Shareholders received a 11.4% increase for the Jan. 6, 2021 payment date, a growth rate very close to its medium-term average. The stock has a yield of 2.7% today, double that of the S&P 500 index. However, this is below the five-year average yield of 3.3%. HP's EPS have a CAGR of just over 8% since 2016. We believe a more conservative growth rate of 4% annually over the next half-decade is much more likely given the low base that earnings started with 2016 combined with lower growth in the recent term. We believe the company's positioning as a leader in the printing and personal computing industries should provide for decent growth in the coming years. Shares of HP trade for around $29 at the moment. With our expectation for EPS of $3.59 for the fiscal year, HP has a P/E ratio of 8.1. Given the legacy nature of its businesses, we think a P/E ratio of 10 is a reasonable starting place. If the stock were to reach this valuation target by 2026 then multiple expansion would add 4.3% to annual returns. Therefore, HP's total returns would consist of the following: 4% earnings growth 2.7% dividend yield 4.3% multiple expansion We forecast that HP could offer a total annual return of 11% per year for the next five years. Dividend Achiever #3: Verizon Communications Formed in 2000 through a series of mergers, Verizon has transformed into one of the largest wireless carriers in the U.S. The company covers nearly the entirety of the U.S. population and geography. Verizon had revenue of $128 billion in 2020 and is valued at almost $216 billion. A 2% increase for the upcoming Nov. 1, 2021 payment date extended Verizon's dividend growth streak to 17 years. The most recent increase is par for the course as the company's dividend has a CAGR of 2.3% over the last decade. While the dividend growth rate isn't much to speak of, the yield of 4.9% is very generous. It is also above the stock's long-term average yield of 4.6%. As one of the nation's premier wireless carriers, Verizon has a moat that is matched by few competitors. The company also benefits from the higher barriers to entry in the telecommunications industry. In fact, there are just three main wireless carriers today. Verizon also has the first-mover advantage in that it was the first wireless carrier to turn on 5G service. 5G should be a sizeable catalyst for the company's business. The telecommunications sector is seen as a slow growth business, but Verizon's EPS compounded at a rate of 8.5% over the last decade. This growth did slow to 4.8% since 2016, but is still a decent enough rate of return. Erring on the side of caution, we anticipate that earnings will grow by 4% annually through 2026. Shares of the company currently trade around $52. With expect EPS of $5.30 for 2021, giving Verizon a P/E ratio of 9.8. With a target multiple of 13 times earnings, slightly below the long-term average, this implies meaningful tailwinds from multiple expansion. If our target valuation were to be reached then valuation would add 5.8% to total returns over the next five years. Verizon's total returns would consist of the following: 4% earnings growth 4.9% dividend yield 5.8% multiple expansion In total, we project that Verizon will return 14.7% annually over the next half-decade. Key Takeaways Investors looking for quality dividend growth stocks can begin their search with stocks that have maintained long histories of regular dividend increases. Certain dividend growth stocks such as the three presented here, are particularly appealing as they combine dividend growth with high total return potential.

'Achieve' High Returns With These 3 Dividend Growth Stocks

These names are among our favorite Dividend Achievers, those companies with at least a decade of dividend growth.

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